The tax system is one of the most important levers the government can use to support Australian businesses, including small businesses.
For instance, in the two most recent federal budgets, the Coalition government announced tax incentives to help companies invest in the plant and equipment they need to remain competitive, improve productivity and grow.
As such, until 1 July 2017, businesses with annual revenue of less than $10 million can invest in capital expenditure and immediately write off items costing up to $20,000. This was an improvement on the incentives announced in the 2015 federal budget when this provision was only extended to businesses with annual revenue of $2 million or less.
While this is a positive initiative that has seen strong uptake, more needs to be done to ensure larger Australian businesses are also investing in the tools they need to remain competitive in local and global initiatives. Other markets, such as the United Kingdom, have successfully implemented an annual investment allowance for certain assets for larger businesses of up to £200,000. This has seen flow on effects, including an increase in investment and capital expenditure.
The federal government must balance the collection of tax revenue with the need to incentivise businesses to innovate, invest for growth and hire new staff. As a result, it’s important that the tax review which is currently underway, places these three goals at the core of its work.
With this background in mind, I’ve examined three initiatives I’d encourage the federal government to consider to support local firms.
- Lower personal and business rates
Australia operates a complex taxation system, collecting tax through more than 100 different state and federal taxes.
It’s an unnecessarily complex and onerous system. One way to assist businesses to navigate this complexity is to reduce the corporate tax rate. At this year’s budget, the federal government announced a reduction in the corporate tax rate to 25 per cent from 30 per cent, to be staged over the next decade.
This is good news but it does not go far enough. Australia’s tax rate is below average compared to most nations. But according to the Organisation for Economic Cooperation and Development (OECD), our business tax rate is far higher than in Asia, for instance China, Hong Kong and Singapore.
Therefore, there is an opportunity for the government to consider lowering the tax rate even further, to enable Australian businesses to effectively compete with our Asian neighbours.
- Reconsider payroll tax for small businesses
Payroll tax is one of the biggest burdens on Australian businesses. According to the federal government’s latest Tax Discussion Paper Australians pays much higher payroll tax than any other nation.
It’s a complex, state-based regime that includes some businesses and carves out others, for instance small businesses. The result is a system that discriminates against big businesses and discourages companies from hiring more staff.
An alternate approach – or at least an approach that levels the playing field for all businesses – would be to reduce payroll tax or make it fair for all businesses.
- Breaks for businesses who pay tax early
One option that would help the government to collect payments in a quicker, more efficient manner is to offer small tax breaks for businesses that pay early.
Such a system would bring revenue into the government coffers quicker, releasing more money to be spent on essential services and helping to manage the budget. This capital could also spur investment in much-needed assets and infrastructure.
For most businesses, their tax bill is one of their most significant expenses. Yet completing their bill does not help businesses to be more efficient, productive or profitable, and this is particularly important for small businesse.
So there is an opportunity for governments to reconsider how tax incentives could be used to support businesses and to ensure they have the resources to grow and keep contributing to federal tax revenue. If we don’t reassess the current system, we risk losing investment and innovation as well as harming the nation’s productivity and small businesses across the country.